The Good, Bad, and Investment Value of the Online Travel Space

The top three online travel companies have reported earnings, but which is presenting the best opportunity?

Feb 24, 2014 at 7:30PM

The three big U.S. online travel companies have reported earnings, which for the most part were very solid. However, in digging deeper into the numbers, and taking valuation into consideration, which of (NASDAQ:PCLN), Expedia (NASDAQ:EXPE), and Orbitz Worldwide (NYSE:OWW) is presenting the most investment value?

The good
Priceline, Expedia, and Orbitz all reported earnings in February, and each had different areas of strength that led to large gains.

The industry's most valuable company, Priceline, continued its remarkable run of above-industry growth. Specifically, its revenue increased 29.4% year over year to $1.5 billion, which was easily better than analysts' expectations. Furthermore, the company's gross bookings -- a closely watched metric of user engagement -- rose 38.8% in the quarter, showing an acceleration of bookings growth, with 85% of total bookings coming from international markets.

Expedia's revenue growth of 18% didn't match Priceline's performance but was impressive nonetheless. In addition, its gross bookings rose 21% after growing just 15% in the prior quarter. This bookings growth was fueled by a 25% boost in hotel room nights purchased, which is a staple of Expedia's business.

Orbitz's numbers weren't nearly as impressive as either Priceline or Expedia, as its revenue grew just 4.2% and gross bookings displayed 4% growth. Clearly, these numbers aren't great, but what led to a near 30% stock jump is that expectations were very low following a poor third quarter. Also, 17.5% of its float was short, further showing the number of people betting against Orbitz, which then backfired when the quarter was better than investors feared.

The bad
In trying to determine the best investment in a particular industry, it is always wise to assess the weaknesses of each company and how it might affect that company's future.

Despite Priceline's growth, its guidance was weak. Its first quarter earnings-per-share midpoint guidance of $6.60 is far shy of the $7.21 consensus, as was its revenue growth outlook of 15%-25% versus projections of 27%. This guidance might signal that growth is becoming more difficult. Also, profitability has always been what separates Priceline from its peers, having an operating margin of 35.5% over the last 12 months. However, its operating margin fell 200 basis points year over year and ad spending of 36% outpaced growth. Combined, this adds to the notion that growth is becoming more difficult.

For Expedia, its growth and bookings have both accelerated, but this performance is in large part due to its acquisition of Trivago, a European travel site that is growing at more than 60% annually. Without Trivago, revenue growth would be just 14%, or about half of Priceline; some people consider this a concern.

While Priceline and Expedia are expected to grow double digits in 2014 and 2015, Orbitz's growth is far less consistent and aggressive. With that said, its 4% expected growth for 2014 is far below the rate of growth within the online travel industry, meaning it consistently loses market share year after year.

The investment value
As you can see, each company has its strong points but then also comes with investment concerns. Yet, the question remains of which single company in this space has the most upside while also presenting the most security.

Priceline is the obvious choice. But with it trading at 10 times sales, so much of its valuation is tied to the fact that it's highly profitable. This means that any margin weakness could drastically affect sentiment, much like Apple back in late 2012.

As for Orbitz, its fundamental performance is all over the place, wildly inconsistent to say the least. And with just 4% growth expected, Orbitz is rapidly approaching a place in its existence where growth becomes no more. At this point, the best investors can hope for is that either Priceline or Expedia acquire Orbitz and are willing to spend money to grow its name.

This leaves Expedia, a company with solid growth; and at just two times sales, it is very cheap. Not to mention, while Priceline struggles with margin pressure, Expedia is seeing its margins rise, which could create very large gains if such improvements are sustainable.

Final thoughts
Essentially, the battle of the best investment really comes down to the two leaders, Priceline and Expedia. Then, the disconnect is what makes Expedia the best choice.

Priceline has annual revenue of $6.8 billion; Expedia reported $4.4 billion last year. Therefore, Priceline is about 50% larger than Expedia, yet its market cap is nearly seven times larger! Hence, there's a huge gap between the valuation and actual sizes of these companies, and a larger reason is the superior efficiency of Priceline relative to its peers.

However, if Priceline's margins are under pressure, and Expedia is improving, then this insinuates further upside, possibly very large gains, for Expedia, making it the best of the bunch.

These 3 stocks will help you retire rich
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers